Credit Inquiries

What is a credit inquiry?

A credit inquiry is an item on a credit report that shows a business with a "permissible purpose" (as defined under the federal Fair Credit Reporting Act) has previously requested a copy of the report.

Not all inquiries count toward your credit score.
When you check your credit report, you may notice that a number of credit inquiries have been made, sometimes from businesses that you don’t know. But the only inquiries that count toward your credit score are the ones that result from your applications for new credit.

• Inquiries that count toward your credit score.
  
  There is only one type of credit inquiry that counts toward your credit score. When you apply for a mortgage, auto loan or other credit, you authorize the lender to request a copy of your credit report. These types of inquiries, prompted by your own actions, appear on your credit report and are included in your credit score.
  
• Inquiries that don’t count toward your credit score.
  
  Your own credit report requests, credit checks made by businesses to offer you goods or services, or inquiries made by businesses with whom you already have a credit account do not count toward your credit score. Credit checks by prospective employers also do not count. These types of inquiries may appear on your credit report, but they are not included in your credit score.
  
  Your credit score is not affected when you check your credit.
  Checking your credit reports regularly to be sure they are accurate and error-free is a good idea. In fact, maintaining accurate credit reports is a part of good credit management, which can help to improve your credit scores over time.

How inquiries are factored into credit scores.

There are five types of information used to calculate your credit score at any given point in time. Each type of information counts as a percentage of a total credit score:

Payment history = 35%
Amounts owed = 30%
Length of credit history = 15%
New credit = 10%
Types of credit in use = 10%

These percentages are based on the importance of the five categories for the general population. For particular groups, such as people with relatively short credit histories, the importance of the categories may differ.

Inquiries are a subset of the "new credit" category shown above, which accounts for 10% of the total credit score. Their importance depends on the overall information in your credit report. For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score. What's important is the mix of information, which varies from person to person, and for any one person over time.

Inquiries may or may not affect your credit score.

A credit score takes into account only voluntary inquiries that result from your application for credit. The information about inquiries that can be factored into your credit score includes:

• Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account.
• Number of recent credit inquiries.
• Time since recent account opening(s), by type of account.
• Time since credit inquiries.

A credit score does not take into account any involuntary inquiries made by businesses with whom you did not apply for credit, inquiries from employers, or your own requests to see your credit report.

For many people, one additional credit inquiry (voluntary and initiated by an application for credit) may not affect their credit score at all.

Inquiries can have a greater impact, however, if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk: People with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries on their reports.

What happens when you apply for credit?

When you apply for credit, you authorize the lender to ask for a copy of your credit report. This is how voluntary inquiries appear on your credit report. The inquiries section of your credit report contains a list of everyone who accessed your credit report within the last two years. The report you see lists both voluntary inquiries, spurred by your own requests for credit, and involuntary inquiries, such as when lenders order your credit report to offer you a pre-approved credit card.

Will my credit score drop if I apply for new credit?

If it does, it probably won't drop much. If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score.

What to know about "rate shopping."

Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report. To compensate for this, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. If you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For credit scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For credit scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the credit scoring formula it wants the credit reporting agency to use to calculate your credit score.

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